The report is a monthly analysis of 1,000 loan applications to the site.
Approval rates from institutional lenders continue to grow, as they have in every month since the Index was first published in January 2014. The current approval rate of 61.7 percent represents an 8.67 percent year-over-year increase.
“Institutional investors have a higher incentive to loan money,” Biz2Credit Co-Founder and CEO Rohit Arora explained. “Their asset income has not grown.”
This increased involvement benefits both sides, Mr. Arora said. Borrowers enjoy competitive rates as more sources compete to lend to small businesses, while the institutions see increased portfolio diversity.
Big banks, defined as having $10 billion or more in assets, continue to glacially increase their collective small business approval rate, which now stands at 22.4 percent after nine straight monthly gains.
While still a fraction of the approval rates of other sectors, Mr. Arora said that rate has doubled since the depths of the recession.
One troubling note about big bank lending is their ebbing desire to facilitate loans under $1 million.
“There has been a 19 percent drop in credit availability for loans under $1 million between 2008 and 2013,” Mr. Arora said. “If that drop happened during the recession I would understand but it has not.”
“Big banks are approving roughly one out of every five loans, so there is room to improve.”
Mr. Arora said the most recent notes from the Fed are dovish in tone. That sends the signal that when rate hikes do begin, they will be both smaller in size and less frequent than they could be in a different climate.
That will likely keep big banks sitting on their large reserves while they wait for spreads to increase, Mr. Arora explained. That will not change much until rates hit three or four percent, which could take years, he added.
That is good news for marketplace lending.
When the banks do re-enter the space they will do so in a few ways, Mr. Arora predicts. They will seek partnerships with marketplace lenders and technology platforms. Expect an increase in mergers and acquisitions as the banks seek technologies which are fundamentally different than their own, he added.
“There is a difference between building front end and back end technology,”
In summary, Mr. Arora said the trends are moving in the right direction if you are a small business owner in search of financing.
“It is a good time for people. The economy is good, rates are low and there are lots of opportunities.”
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